The first giant destroyed by AI has appeared: the stock price of this education company plummeted by 99%
During the pandemic, the rise of online learning led to Chegg's subscription numbers and stock price reaching an all-time high. However, the emergence of ChatGPT changed everything, as students began to abandon Chegg in favor of the free ChatGPT for answers. The loss of customers resulted in the company's stock price plummeting nearly 50% in a single day, down nearly 99% from its historical peak. Wall Street analysts expect Chegg's Q3 revenue to continue to decline by 15%
The wind of AI has toppled the online education giant Chegg.
Once during the pandemic, the rise of online education made Chegg the go-to platform for students seeking homework help, with the company's stock price and subscription numbers reaching all-time highs. Each user had to pay up to $19.95 per month to access textbook solutions and instant expert assistance.
However, with the emergence of the AI chatbot ChatGPT, students suddenly had a free alternative, leading to a sharp decline in Chegg's subscription user base. Since the launch of ChatGPT, Chegg has lost over 500,000 paid subscribers, and its stock price has plummeted by 99% from its peak in early 2021, resulting in a market value evaporation of approximately $14.5 billion. Bond traders are questioning whether the company can continue to generate enough cash flow to service its debt.
Jonah Tang, an MBA student at Point Loma Nazarene University in San Diego, stated:
“Using ChatGPT to help with homework is better than using Chegg because ChatGPT is free, responds quickly, and you don’t have to worry about not finding answers.”
AI Disrupts the Online Education Market
Chegg initially started as a simple student communication platform, later evolving into a textbook rental company in the 2000s and offering human-written online study guides in the 2010s. Although Chegg has developed its own AI products, the company is still struggling to convince consumers and investors that it holds value in the market environment disrupted by ChatGPT.
Former Yahoo executive Rosensweig, who became CEO of the company in 2010, managed Chegg like a rapidly growing tech company, paying employees handsomely and even participating in a reality show to teach young people about repaying student loans. However, when the company's business faced difficulties in 2022, employees wanted to develop an AI tool for automatically answering questions, but the WSJ cited a person involved in the project stating that company leadership initially rejected this request.
After the release of ChatGPT, some Chegg employees felt that ChatGPT would not pose a threat to them, as it sometimes provided incorrect answers. But months later, Chegg's internal data showed that more and more students began using ChatGPT as a study aid. Even more surprisingly, they found that the technology behind ChatGPT, GPT-4, sometimes provided better answers than those given by Chegg's experts.
Around that time, Chegg CEO Rosensweig met with OpenAI CEO Sam Altman, and the two decided to collaborate on a new service called Cheggmate, which would use Chegg's millions of answer databases and GPT-4 technology to quickly respond to student inquiries and generate quiz questionsAs Cheggmate begins testing, Rosensweig stated in a conference call this May that ChatGPT has taken their users, leading Chegg to withdraw its financial forecast for the remainder of the year, resulting in a single-day stock price plunge of 48%.
In the subsequent earnings call, Rosensweig announced that Chegg would no longer use the name Cheggmate. Chegg has started to mimic ChatGPT by using AI to answer questions and has partnered with another startup, Scale AI, to develop over twenty AI systems to help students learn different subjects. Chegg's website page closely resembles ChatGPT's; upon opening the site, users see a text box where OpenAI's application asks, "How can I help you?" while Chegg's homepage now asks, "What help do you need today?"
Chegg claims that using AI to answer questions costs about a quarter less than hiring people to do so. However, despite these new tools, Chegg's user base continues to decline. Chegg reported an 11% drop in revenue for the second quarter, marking the largest annual decline since 2017. Wall Street analysts expect that when Chegg announces its third-quarter earnings on Tuesday, revenue will drop another 15%. Investment bank Needham analyst Ryan MacDonald expressed concern that the difficulties Chegg faces are not temporary but rather deeper, structural issues.
Chegg claims that 91% of its users are satisfied with its products, but a survey by investment bank Needham shows that the proportion of college students planning to use Chegg this semester has dropped from 38% in the spring to 30%, while the proportion planning to use ChatGPT has risen from 43% to 62%.
Rosensweig served as CEO of Chegg for over a decade and resigned in June due to the company's stock price plummeting under his leadership. Chegg stated that Rosensweig notified the board a year in advance of his plan to retire.
After Nathan Schultz took over as Chegg's new CEO, he laid off nearly a quarter of the staff to address the challenges the company faces and pushed for international market expansion. Schultz stated that Chegg aims to provide students with services beyond just homework answers, including more comprehensive responses and consulting services to attract more serious learners. Schultz emphasized that in such critical times, one must focus on what they do best. They want to attract students who need more help, not just those looking for free answers